Petropavlovsk PLC

Petropavlovsk PLC (LON: POG) is a FTSE 250 listed entity engaged in mining precious and non-precious metals.

Investment Rationale – SPECULATIVE BUY at GBX 17.59

• Surge in Gold Prices: The Gold was trading around the $1,826 level as it is getting benefitted with weakening US Dollar index and US Treasury Yield.
• Liquidity Boost: The recent disposal of 31.1% stake in IRC Limited is likely to generate a significant cash consideration, which would improve the Company’s credit metrics.
• Solid Fundamentals: Petropavlovsk is a major integrated Russian gold producer that has improved margins and expected to trade strongly in Q4 FY21.
• Undervalued Multiples: On a forward 12-month basis – EV/Sales, EV/EBITDA, Price/Earnings, and Price/Book multiples of the Petropavlovsk PLC are currently lower as compared to the median of the Basic Materials industry.
• Positive Technical Stance: From a technical standpoint, 14-day RSI (~28.29) is around the oversold territory, while the stock price is trading close to the lower standard deviation of the Bollinger Bands.

Risk Assessments

• Gold Price Volatility: The interest rate hikes, and rising US Treasury Yield can cap the gains of gold prices.
• Macroeconomic Uncertainties: Weak industrial data, global shortage of semiconductors, supply constraints, tightening of monetary policy can hamper the business prospects.

Q3 2021 Production and Sales Report (for the quarter ending 30 September 2021, as on 25 October 2021)

 (Source: Company Website)

• Production: During Q3 FY21, production reduced by 2% year-on-year, due to lower gold production from 3rd party concentrates.
• Sales: The Gold sales totalled 120.1 koz (kilo-ounce) in Q3 FY21 (Q3 FY20: 121.1koz).
• Liquidity: As on 30 September 2021, POG reported US$34.5 million of cash and debt principal outstanding of US$592 million.

Share Price Chart

 (Data Source: Refinitiv, Analysis by Kalkine Group)

Valuation Methodology: Price/Earnings Approach (FY21) (Illustrative)

Conclusion

POG reaffirmed its full-year gold production guidance of 430 - 470koz, supported by the production from the new Pioneer flotation plant and increased 3rd-party concentrate. On 3 December 2021, POG completed the disposal of its 31.1% stake in IRC Limited for a consideration of US$10 million, which has enhanced the Company’s liquidity. The stock made a 52-week high and low of GBX 32.60 and GBX 16.01, respectively.

Based on the reiterated production guidance, robust cash position, no material Covid-19 outbreak at sides, supported by the valuation conducted above, we have given a “SPECULATIVE BUY” recommendation on Petropavlovsk PLC at the current market price of GBX 17.59 (as on 14 January 2022, at 8:10 AM GMT), with lower double-digit upside potential based on 14.18x Price/NTM Earnings (approx.) on FY21E Earnings Per Share (approx.).

FD Technologies PLC

FD Technologies PLC (LON: FDP) is a FTSE AIM UK 50 Index listed Software & Computer Service Company, which provides consulting services.

Rationale for Valuation – SPECULATIVE BUY at GBX 1,690.00

• UK GDP: Britain's economy grew by a much stronger-than-expected 0.9% in November 2021
• Stronger Balance Sheet: FDP slashed its net debt by 62% year-on-year at the end of H1 FY22, reflecting stronger financial position to pursue growth opportunities.
• Growth Drivers: The growing demand for digital acceleration has created ample opportunity for the Group. The release of the 4.0 version of Kx shall increase the Company’s competitiveness.
• Technical Indicator: From a technical standpoint, 14-day RSI (~27.14) is around the oversold territory, while the stock price is trading close to the lower standard deviation of the Bollinger Bands.
• Valuation Multiples: On a forward 12-month basis, EV/Sales, and EV/EBITDA valuation multiples are quite undervalued against the average of the Technology sector.

Key Risks

• UK Services PMI: The UK Services PMI fell sharply to 53.2 in December 2021 from 58.5 in November 2021.
• Pandemic Induced Restrictions: Due to the concerns induced by Omicron variant, travel restrictions can have an impact on new business and pipeline opportunities.

Financial Highlights for the six months ended 31 August 2021 (as on 2 November 2021)

 (Source: Company Website)

• Strong Momentum: FDP witnessed an increased momentum across the business and reported a 7% year-on-year revenue growth in H1 FY22.
• Stronger Financial Position: The debt stood at £11.7 million on 31 August 2021, reflecting a 62% reduction against the position at the end of H1 FY21.

One Year Share Price Chart

 (Data Source: Refinitiv, Analysis done by Kalkine Group)

Valuation Methodology: Price/Cash Flow Approach (FY22) (Illustrative) 

Conclusion 

FDP recently won several new contacts in key markets that bolstered the Company’s pipeline. It expects FY22 revenue to be in the range of £255 million to £260 million, with adjusted EBITDA in the range of £31million - £33 million. Moreover, it has undertaken 41 KX subscription deals, signed 12 new customers, and launched KX Insights during the first half of FY22.

In a nutshell, FDP looks confident about its business and market opportunities, since it has significantly invested in the product, technology, and people. The stock made a 52-week High and Low of GBX 3,425.00 and GBX 1,670.00, respectively. 

Based on the improved trading momentum, revenue guidance, accelerated growth strategy, strategic investments, favourable valuation conducted above, we have given a “SPECULATIVE BUY” stance on FD Technologies PLC at the current price of GBX 1,690.00 (as on 14 January 2022, at 8:50 AM GMT), with lower double-digit upside potential based on 29.19x Price/NTM Cash Flow (approx.) on FY22E Cash Flow Per Share (approx.). 

*Depending upon the risk tolerance, investors may consider unwinding their positions in a respective stock once the estimated target price is reached or if the price closes below the support level (indicative stop-loss price).

*All forecasted figures and Industry Information have been taken from REFINITIV.

*The reference data in this report has been partly sourced from REFINITIV.

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